Cuban Says ‘Dead’ Small IPO Market Is Hurting Competition

The market for small U.S. initial
public offerings is “dead,” making sales of startups to larger
companies more likely and reducing competition, billionaire
investor Mark Cuban said.

The absence of a threat from small, growing companies has
led to larger corporations investing less in research and
development, Cuban, 54, said today on a panel sponsored by the
Clinton Global Initiative in Chicago. While startups have plenty
of access to funding, middle-market companies are facing a
squeeze, Goldman Sachs Group Inc. President Gary Cohn said on
the panel.

There were 12 U.S. IPOs that raised between $5 million and
$60 million last year, according to data compiled by Bloomberg.
In 1999, there were 249 such deals. A change in the makeup of
equity-market participants accounts for that decline, Cuban
said.

“Our stock markets are no longer about investing capital
in growing companies to help them grow,” Cuban said. “They’ve
become platforms for high-frequency trading, algorithmic
trading. There’s no more investors, there’s just traders, and
that’s the root of the problem.”

Cohn disagreed, saying there were plenty of mutual fund
companies that seek long-term returns. The dearth is caused in
part by a lack of new money flowing into equity mutual funds
after the financial crisis, Cohn said.

Middle Section

“The big companies have access to the capital markets, so
they’re fine,” he said. “The small entrepreneurs with creative
ideas, they’re fine. It’s really the middle section that’s
having the trouble accessing capital.”

Large U.S. companies are able to buy upstart firms to
eliminate a competitor and then invest less in innovation, Cuban
said. He said that process will unfold in the next few years as
large insurance companies buy startups that are seeking to
deliver lower-cost health-care services.

“Rather than having 300, 400, 500 booming companies that
raised $30 million and used that capital to grow even more, now
they’re selling those companies to get that return, so you’re
not having nearly the number of companies just explode and
compete,” Cuban said.

The Jumpstart Our Business Startups Act, or JOBS, signed
into law April 5, 2012, was intended to spur hiring and make it
easier for public and private companies to raise capital. About
600 firms elected “emerging growth company” status in the year
after it was signed into law, which reduces the compliance cost
of going public, according to a Bloomberg Government analysis.